retirement

All about your employee stock ownership plan

Investing newspapers
Highlights
  • More companies are expected to offer ESOPs as retirement options.
  • ESOPs can help build wealth, but workers should not rely on them exclusively.
  • Invest in a 401(k) plan, an IRA and savings accounts to diversify holdings.

Does your employer offer an employee stock ownership plan, or ESOP? If not yet, it may soon. Research from Georgetown University shows that companies that offer employee stock ownership plans have fared significantly better during the recession than those that do not offer such plans.

Experts predict more companies will begin offering ESOPs as retirement options for their employees.

The opportunity to own a slice of the company where one works -- at no cost to the employee -- sounds fabulous, but it has drawbacks.

Nothing to lose -- except security

Renee Fellman, a turnaround expert who focuses on fixing employee stock ownership plans in the manufacturing sector, says that employees should know what they're getting into. While employee-owners share in the company's success, they also share the risks. For instance, if the company is in a declining industry or the firm's ESOP doesn't outline specific guidelines for accountability throughout the organization, an employee's stock in the company could be doomed to fail.

On the other hand, ESOPs that are set up correctly in growing businesses can be a powerful tool to build retirement savings.

While not every employee stock ownership plan will turn out to be a wealth-building gift, there's rarely a reason to turn down the benefit if it's offered. "Even if the ultimate benefit turns out to be only one dollar, it is still a free dollar," says Kyle Coltman, the managing director of SES Advisors who has designed and implemented more than 500 ESOPs.

"The company is funding a retirement benefit for the employee and it's one that costs the employee nothing. All eligible employees should participate in their ESOPs," says Coltman.

Employees who take time to understand the benefit and how it can fit into a larger plan for their retirement savings will fare better.

advertisement

What you need to know

Companies that offer employee stock ownership plans are required to provide qualifying employees a summary plan description, which includes information about eligibility and participation requirements. As a first step, an employee should read through this description.

Many companies also conduct employee communication sessions to inform employees about their employee stock ownership plan and the performance of their investments, says Jared Kaplan, an ESOP attorney at McDermott Will & Emery based in Chicago.

 

Show Bankrate's community sharing policy
          Connect with us
MORTGAGE HOME EQUITY AUTO CDs CREDIT CARDS
Product Rate Change Last week
30 year fixed 4.06%  0.22 4.28%
15 year fixed 3.17%  0.07 3.24%
5/1 ARM 3.52%  0.11 3.41%
 
View Rates in your area Next
Product Rate Change Last week
30K FICO-based HELOC 4.36% --0.00 4.36%
50K FICO-based HELOC 4.06% --0.00 4.06%
100K FICO-based HELOC 3.91% --0.00 3.91%
 
View Rates in your area Next
Product Rate Change Last week
60 month used car loan 2.79%  0.10 2.69%
48 month used car loan 2.98%  0.06 2.92%
60 month new car loan 3.23%  0.04 3.19%
 
View Rates in your area Next
Product Rate Change Last week
1 Year CD 0.94%  0.01 0.93%
2 Year CD 1.13% --0.00 1.13%
5 Year CD 1.76%  0.00 1.76%
 
View Rates in your area Next
Product Rate Change Last week
Balance Transfer Cards 15.77%  0.06 15.71%
Cash Back Cards 16.44%  0.03 16.41%
Low Interest Cards 10.96%  0.10 10.86%
 
Next
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

Blog

Jennie Phipps

Work less – ‘It’s a better life’

Retirement actuary Steve Vernon says working less while delaying Social Security is the best way to retire.  ... Read more

advertisement
Partner Center
advertisement

Connect with us